Benign Growth For ShenZhen YUTO Packaging Technology Co., Ltd. (SZSE:002831) Underpins Its Share Price

With a price-to-earnings (or "P/E") ratio of 16.7x ShenZhen YUTO Packaging Technology Co., Ltd. (SZSE:002831) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 33x and even P/E's higher than 62x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent earnings growth for ShenZhen YUTO Packaging Technology has been in line with the market. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

See our latest analysis for ShenZhen YUTO Packaging Technology

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Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like ShenZhen YUTO Packaging Technology's to be considered reasonable.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Fortunately, a few good years before that means that it was still able to grow EPS by 25% in total over the last three years. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 14% per year over the next three years. That's shaping up to be materially lower than the 26% per year growth forecast for the broader market.

With this information, we can see why ShenZhen YUTO Packaging Technology is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From ShenZhen YUTO Packaging Technology's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that ShenZhen YUTO Packaging Technology maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for ShenZhen YUTO Packaging Technology you should be aware of.

Of course, you might also be able to find a better stock than ShenZhen YUTO Packaging Technology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.